Art's sale value? Zero. The tax bill? $29M
nytimes.com
nytimes.com
Since the heirs couldn't sell it and it was forced to be on display in a museum, seems like it made very little difference, while allaying the IRS's theoretical concerns about it potentially being sold on the black market, I guess...
"Even then, the government revisited the issue in 1998. Rauschenberg himself had to send a notarized statement attesting that the eagle had been killed and stuffed by one of Teddy Roosevelt’s Rough Riders long before the 1940 law went into effect. Mrs. Sonnabend was then able to retain ownership as long as the work continued to be exhibited at a public museum. The piece is on a long-term loan to the Metropolitan Museum of Art in New York, which Mr. Lerner said insures it, but the policy details are confidential."
I appreciate the intent behind the law, but this is one of those situations where a sensible argument could be made that a stuffed bird from before the law was put into place is hurting no one.
the original owner was able to
own the piece in the first
instance on very shaky grounds
This is used, for example, to allow museum exhibitions and Native American religious ceremonies. There's even a special form [3] to apply for the permit!
So long as the eagle is in a museum that meets the requirements of the eagle exhibition permit, the ground seems pretty firm to me!
[1] https://en.wikipedia.org/wiki/Migratory_Bird_Treaty_Act_of_1... [2] https://en.wikipedia.org/wiki/Bald_and_Golden_Eagle_Protecti... [3] https://www.fws.gov/pacific/eagle/permit_types/exhibition_de...
One bad apple ruins the whole bunch.
A deduction from a number that they "invented". If appraisers (and basically the market) say the value is 0 but the IRS says it's $65 million who is right?
What if you have a regular piece of art that's appraised at say $1 million but the IRS says it's $1 billion? It appears the IRS's evaluation always stands. If so it's a perfect method to strong-arm at will.
> Last fall, the agency sent the family an unsigned draft report that it was valuing “Canyon” at $15 million. After Mr. Lerner replied that the children were refusing to pay, the I.R.S. then sent a formal Notice of Deficiency in October saying it had increased the valuation to $65 million.
And the strong-arming.
If someone is willing to take a 20% loss on “market value”, that market is not market value.
It's like telling any appraiser... Yeah you think it's worth that much? Prove it! Buy the sucker! If you did that multiple times they would go bankrupt, because sure they may be able to resell the thing if priced correctly but they need to pay for it in the first place. And to do it at the scale of IRS ... It's not a reasonable request or expectation.
Also you're taking a gamble by challenging the IRS to buy something at a discount that they won't actually call your bluff and you lose out on money. And if you're actually standing by your personal assessment over theirs, you either make money or you get to skip the tax bill.
This seems like a much better balance than what we currently have.
If they can't sell the asset and then return 80% of it's market value to the original owner over the course of a year, than they were probably wrong about the market value.
Of course there are certain items that may take longer than a year to find the right buyer, mega yachts, specialized works of art, but if these things take years to sell and find the right buyer than their potential market value should be reduced to reflect that.
If the IRS can just blurt out their own evaluation overriding any independent appraiser, even bump it up 300+% between draft and final evaluation, and tax you based on it then yes I do see quite a few people in this situation.
I'll try to assume the best interpretation of what you wanted to say and guess that maybe you didn't think that if the IRS can do this for a $1bn inheritance (than can or cannot be sold) they can also do it for a $100 inheritance. It's the principle of them being allowed to make the authoritative appraisal (not their job) that's the issue here, not that they collect taxes (their job).
And that's not even discussing yet the process through which an appraisal gets bumped up by over 300% between 2 steps that were both considered to be solid enough to actually be sent out.
The IRS valuation of art and other collectibles is based on polling independent third-parties the likely fair-market value of the art/collectible at issue. If the situation proceeds to court, then they develop a formal appraisal (or occasionally hire an independent third-party appraisal, depending on the item being examined).
Nobody here is crying for rich people having to pay taxes on assets with a value that can actually be realized - this is a question of fairness and logical consistency. At exactly what level of wealth are you arguing that the government should be able to make logically inconsistent determinations about how much you owe them?
>If someone is in a situation where their property's valuation cannot be evaluated by the sale of similar objects on the market, then they are without exception able to afford to pay the taxes on it.
If anything this article proves that the exact opposite is possible. If I owned "Canyon" - which I can't sell - and my remaining assets are valued lower than the tax on "Canyon" based on the initial IRS assessment, then I couldn't afford to pay the taxes on it.
Fixed that for you. This situation is literally not applicable to 99.999% of the US population.
And there's no reason to believe the IRS can do this only when talking about art that can't be sold.
The IRS does not have the right to override an appraisal.
What happened was this: taxpayer valued art at $0 without any supporting evidence. IRS special panel for appraising art (comprised of professional appraisers and art museum curators) valued art at $X million without knowing that it was illegal for taxpayer to own said art (because the law allows museums to own such items). Taxpayer challenged, saying they couldn't actually sell art for any amount, and the IRS agreed and waived the assessment in exchange for the taxpayer relinquishing ownership of illegal item to a museum.
The only reason the kids in this situation even "owned" the art was a special dispensation given to their ancestors--not them--allowing them to "own" the art (a stuffed eagle) while it was in the possession of a museum. The dispensation didn't actually give the ancestors the power to transfer ownership to their children and there was a legal question that it could even be inherited.
In this case, the art seems to be nearly the entire estate.
Unless you have an inherited art collection worth millions, this will never happen to you.
In this case, it wasn't necessary because the children agreed to turn over the inherited stuffed eagle to a museum and the IRS agreed that it had no sales value in the hands of a non-museum.
Just because a safety net exists doesn't mean the IRS should be shoving people into it.
This is how COST works:
1. The owner can determine what the value of the asset is. They can over or underestimate the value as much as they want.
2. The owner pays some percentage of that valuation as tax. If they value the asset very low, they pay very little taxes.
3. The catch. Anyone can buy the property at any time at the owner determined valuation. If you don't want anyone to buy your assets, you must value it more than other people and and pay taxes for the value.
EDIT:
It seems that many people think that COST type private property tax would extend to personal property or could be applied without modification to housing for poor people etc. Personal possessions are not taxed in any place of the world and tax deduction make sure that small personal properties can be owned without paying tax.
The system requires some adjustments, for example property taxation might be somewhat different. Vitalik Buterin discusses these issues in his review of the book: https://vitalik.ca/general/2018/04/20/radical_markets.html
i think that can open up some issues with people's assets that also have sentimental value.
I think instead of "anyone", it should be just the govt. If your appraisal seems too low, then the gov't reserves the right to purchase the asset instead of charging you the owed tax.
I mean, you would not extend the taxation to personal holdings with little value or moderate value (automatic tax deduction of $2,000 per person from COST would probably be enough) but if someone wants to keep something very valuable for sentimental reasons, why the feeling should not have a value put on it?
The distinction between personal property or personal possessions and private property is important to make and the line must be drawn.
Only if you accept the money given makes up for the loss. Money does not make someone rich. It may put bread on the table but that poor person is still poor because they lost what was important to them.
Also the rich don’t get rich by paying more than they have to, which may not be what the property is worth to the original owner.
if you owned some land which could've been mined/fracked upon, then it might make economic sense for said company to purchase your land. You'd have to either pay an above average tax rate to justify holding on to the land, or be forced to sell it.
On the one hand, it does make economic utilitarian sense. On the other hand, it prevents people from being able to control their own property. Esp. if they have no funds to fight or defend themselves.
The stack is already against the homeowner who lacks lobbyists to fight back
This achieves more of a level playing field.
You can set the number so that if poor person must pay tax, he actually is moderately wealthy.
The question can easily be turned around: why should sentimental value be taxed?
It seems to me that protecting the things that are important to someone is a core purpose of society. Forcing someone to choose between the security of the things that are important to them and their financial wellbeing would undermine that.
The justifications for a high tax rate don't seem to apply to inheritance of items that have high sentimental value but low utility. Since the property does not have great utility, taxing it does not moderate income inequality due to inheriting capital. Both the idea of a higher tax rate on people who have more and the idea that it is justified to tax things higher that people didn't earn seem like an odd match for property that is high in sentimental value.
Someone who has a lot of valuable things is better off than someone who doesn't, and so we demand a greater share of tax from them. It seems to me that that logic goes through exactly the same whether that value is nominal or sentimental.
There's nothing accurate about saying an expensive work of art has "low utility."
(and as I pointed out in a separate comment, an inexpensive work of art won't be taxed heavily so the whole point is moot)
Then you have to go to the shops and buy new stuff... or just go over to their house the next day and buy it all back at the same price. Maybe see if they've got any other good stuff that isn't worth much while you're there.
Or you could just buy it back immediately when they buy it from you, stuck in an infinite While loop of ownership.
Obviously social decorum would usually prevent this scenario, but the fear of possibility remains.
For example cars, land, air rights, real property.
This would also settle the issue of eminent domain once and for all. Put up or shut up.
Presumably the government would auction them (as is done with seized proceeds of crime etc.). So there is no way to hand them off to a friend for a below-market price, and no way to profitably kickback.
> I think instead of "anyone", it should be just the govt. If your appraisal seems too low, then the gov't reserves the right to purchase the asset instead of charging you the owed tax.
For intellectual property (only), I've suggested in the past a version of this where anyone can buy it at the declared value, but it can only be bought into the public domain, which is sort of a hybrid of the anybody can buy and only the government can buy ideas.
In the more general case, an alternative is “anyone can offer to buy with a bid at or above the declared value, but unless it is the government exercising eminent domain you can refuse by increasing the declared value above the bid, posting back taxes as if the declared value for the current tax year were the new value, and for prior years as if the value had increased on some legally defined schedule over a set window of years (say, 5) or since you acquired the item, whichever is shorter, including a time-based penalty for all the ubderpayments.”
Also, there is an old lady living in one apt since WW2, but she's short on cash. I guess I could grab her place too. She took a good care of it over the years, but made a mistake of not investing in crypto, so I can easily outbid her now.
It's essentially how horses are kept racing against the appropriate competition. Enter your horse too low, in an attempt to win the purse, and it will get claimed. Enter your horse too high and it will not have a realistic chance of winning.
You just literally recommended it for an item of tangible personal property, so from your recommendation that's not an extension at all.
> Personal possessions are not taxed in any place of the world
Yes, ad valorem property taxes on items of personal property do exist in some jurisdictions in the world, including many in the United States. (E.g., California's Vehicle License Fee is an ad valorem tax on automobiles which are items of tangible personal property.)
> and tax deduction make sure that small personal properties can be owned without paying tax.
That doesn't make sense with the preceding claim: of personal property wasn't taxed, you wouldn't need any kind of deduction to allow owning it without paying tax. Also, deductions which allow this aren't in place where they would be needed (i.e., where certain items of personal property are taxed) to allow ownership without taxation.
Yes. We all write somewhat inaccurately and carelessly in discussion groups. Instead of nitpicking each other, we should try to read each other favorably.
What I mean is that there is classes of tangibles from pots and pans that one commentators was worried about into paintings worth of millions. It's concealable that at some valuations artifacts worth of millions are considered different asset classes.
But what's preventing someone with more money than me from threatening to buy it from me unless I do X for them, or just to be a jerk? Without the computer I lose my ability to do my job, further driving me into poverty.
Am I missing something here?
edit: basically what I wonder is, what prevents this scheme from getting weaponized, and how does it deal with wealth asymmetry?
edit: Basically it assumes the object is available on the market, and it's available for the price I can afford to valuate it at. How does one prevent this tax scheme from being weaponized when one of those two assumptions are not valid?
Suppose I'm a wildlife photographer and I have a camera that unarguably has a market value of no more than $300 (it's what the manufacturer still sells it for). But I've positioned it deep in the Alaskan wilderness at the cost of 50 hours of labor and $15,000 in travel costs. Someone who wants to troll me demands to buy it for $300, requiring payment of those same costs again to retrieve it, and then does the same thing twelve more times, one month apart, for my twelve other cameras.
Or I have a diamond as part of a laser. The diamond costs $100 but then it costs $10,000 to calibrate the laser, so someone who takes the diamond requires me to buy another for $100 and then pay another $10,000 to calibrate the laser again.
Or you have a custom component which can't be manufactured in less than ten years, because it requires a slow chemical reaction, but is a small yet blocking component of a large million dollar operation. Notwithstanding that, it's cheap to make it, because you just start the reaction and come back in ten years. But now someone who wants to shut down your operation just buys that component from you (along with your five spares) for the $10 market value and your million dollar operation is shut down for ten years.
For that matter, it can be used to monopolize the market for various commodities by offering the current market price for everything at once and then turning around to resell them for the monopoly price.
Or members of your family own shares that total 60% ownership in a company, and I own the other 40%. You personally own 12%, which I demand to buy for the market price, even though I should be paying the higher price for a controlling interest.
Or you've got a shelf full of equipment you use for your business operations, which your company manufactured itself and could quickly and inexpensively make more, but having access to any one of them would disclose millions of dollars worth of trade secrets to your competitors.
Market value is a fiction that only really applies to high volume commodities.
So as described in your comment, COST would apply to personal property.
Also, personal property owned by a business is taxed in California (under the business property tax) and generally in some European countries, some South American countries, and India.
That doesn't include the countries that impose wealth taxes, which includes items that would be considered personal property.
For example: https://www.nytimes.com/2019/02/14/arts/design/mary-boone-se...
https://www.wsj.com/articles/art-dealer-larry-gagosian-settl...
There have been some clever plays in this market. For example, the dealer swap - two dealers agree to bid up each other's pieces at auction. The final sale prices are inexplicably very close, so they swap the pieces without moving much money around.
The market as a whole sees a much higher price - so they've made a few (tens of) millions on the assessed value of the pieces and also (probably) raised the value of future auctions of work by the same artist.
All for the cost of the auction fees.
Whether you can sell something to cover the taxes just doesn't seem relevant to the IRS!
The changes aren't usually zero -> something, but that's a footnote to the general principle.
I'm not a financial specialist, but googling[0] suggests that you can, say, use restricted stock as collateral for loans, at least under some circumstances, so the situation is slightly more subtle than having (currently) worthless pieces of paper that you have to pay tax on; not that I'm saying that the IRS is necessarily right.
Surely brokering such sales (to accredited investors) is a profitable opportunity, so someone should be doing that. Charging a few % sounds like a reasonable fee for brokering rather illiquid securities. Not just in silicon valley which mints huge quantities of fresh private equity.
At least large VCs should see it as an opportunity to increase holdings at a discount as employees inevitably rotate in the company.
It's a contentious issue to say the least, and differs from the illegal ivory trade in one important way: ivory is a tooth, but a rhino horn is keratin and can grow back. Dehorning rhinos are a common practice to discourage poaching.
Even outside of this specific situation where the art cannot be sold, it seems questionable to me to tax something that could likely have great personal value to someone but not great monetary or utility value to them.
It seems to me that a good solution would be to change the law so that property which is inherited is only taxed if it is sold within the first 10 years or something.
If you inherit stock, or land, or any other money making asset, it does not make sense to not tax it just because it was not sold.
I definitely think it would make sense to make an exception to a hypothetical "you aren't taxed until you sell it" rule for things that are either directly analogous to wealth (e.g. stocks) or that directly generate wealth (e.g. a factory or business).
I could also see land and housing being an exception, although I also don't like the idea of someone being forced to sell the family homestead. Do you know if they appraise the value of things like land based on its current use or potential use? For example, what if the value of the mineral rights for the family homestead was much greater than the residential value?
If that's the case it is generating some sort of money.
Taxes like this exist to prevent the hoarding of wealth through generations
Taxable gain in pretty much all of the Western World results from "dispositions" of items, which includes non-sale transactions.
Also, the kind of stock we are describing was issued as compensation, and taxation was either reduced or deferred depending on the circumstances, so it is entirely appropriate to tax certain non-sales gains related to the stock.
If it doesn't have great monetary value, the taxes won't amount to much. The only thing that makes this case interesting is that the IRS appraisers were completely off the mark, something that will (one hopes) be resolved in court. If they can get the IRS to agree with the the auction houses that the thing is basically worthless, they can keep the hideous thing in their living room forever without paying anything.
The IRS apparently did not tell them that the item to be appraised was in fact not saleable under other laws. (This article is from 2012, so the situation has been resolved for years.)
The other departments is DOJ, or whoever enforces the prohibition on the sale of the artwork.
This is the worst part of the article to me. Forced to sell your inheritance to pay the taxes on it... Seems ridiculous.
Assuming you are rejecting the entire idea of estate taxes, I suppose.
I don't get it. Would it seem less ridiculous if we were talking about cash instead of art, and they were simply paying the taxes out of those funds? Or is it more of a "death tax bad" thing?
Yes of course. Cash has no sentimental value. Only cash value. Possessions have both.
I guess the same thing happens to people when they are forced to sell their grandmas wedding ring to pay off her inheritance taxes.
1. For a society to be just, we should be able to use the fruits of our labor to provide for our own children.
2. For a society to be fair, no should have an unearned advantage over another by virtue of being born to rich parents.
Any society that picks one rule and discards the other leads to a hellhole. If you pick 1 you get game-of-thrones-style tyrannical dynasties who own all of the wealth and use the poor as their serfs. Pick 2 and you get a pseudo-socialist dystopia where children are separated from their parents and raised in government-funded creches.
You can look at the inheritance tax rate as essentially the point the government picks on the continuum between those two extremes. Given the many many loopholes the wealthy have to avoid taxes on inheritance, I think the current rate is actually too low.
If you look at this from the perspective of the beneficiaries, sure, "losing" $600 million sucks. But they never earned it in the first place. It's not like the had to work hard to choose their family.
They still get something like half a billion dollars. That should be enough for them to scrape by. Meanwhile, think of all of the services that tax bill can provide for. College education for thousands of students. Healthcare for poor children. Environmental protection.
Consider analogously human organs for transplant: clearly valuable, but we've decided to disallow their sale. What's the appraisal value of a kidney?
Think company stock in a private company. It may not be possible to sell it due to bylaws or legal limitations, but it may be possible to borrow against it.
What if there was a market for loans based on valuable but non-transferable things?
It all hinges on the question of whether something will eventually be transferable. You can make an argument that the laws that limit the transfer of ownership could be changed in the future.
Take out a nominal very short term loan with the not-buyer backed by the collateral and never pay it back. Said item will transfer then.
It thankfully won't apply to current ivory or rhino horn bans given import bans but it would probably work to "jailbreak" from home owners associations from hell given the repossesor wouldn't be bound by a contract they never signed.
"Dwarf tossing is an activity in which a large person throws a small person. The venue often is one in which alcohol is served. It is often a source of livelihood for the small person, with the large person paying for the privilege. While dwarf-tossing is legal in many places, it is sometimes banned by law."
Slightly higher middle manager B cared far less but because A forced his hand he can't say "well upon further consideration we value it at $0" because that would piss of middle manager C who wants to maintain the "image of the IRS" or something like that.
So they reach the "compromise" of "well if you donate it then you don't have to pay" which partially satisfies A, B and C yet is total BS considering that these people (whoever they may be, rich jerks have rights too) have been forced to give up possession of their property because some bureaucrat decided this was worth pursuing.
Typical office politics. You see this pattern all the damn time in big organizations.
The issue here was never possession--the children would never have been allowed to actually possess the eagle. The issue was ownership and how much value the eagle had as an owned item.
A person owns things. When they die, the legal person ceases to exist. The things they owned are now owned by a new legal entity called "the estate." Inheriting something is the formal act of transferring ownership from the estate to the people who end up inheriting things.
If something is in the ownership of the estate and it gets destroyed, stolen, or lost, how will it be treated for tax purposes at the time of settling of the estate?
I'm not just being poetic, they are actually connected in the tax code. Untaxed inheritance and untaxed gifts come from a similar lifetime limit, after which they are taxed.
If this was gifted to someone, that person would be liable for $29m income tax.
Sure but they are basically worthless
Stupid law.
As I understand it, the prevailing precedent of the Supreme Court is that revoking citizenship is something that a person must willfully do with the intention of having their citizenship revoked. This wasn't always the case, as it used to be that Congress could declare revoking actions that applied even without intent. So it's possible that this could change, but it's been the case for over half a century and unlikely to change anytime soon.
https://www.irs.gov/individuals/international-taxpayers/expa...
North Korea isn't the only state that makes it hard for citizens to leave....
Just wait till you see what France and Belgium charge expats trying to leave...
The only reason to be on a valuation committee is to give a real valuation. Its got nothing to do with whether or you like the market value.
Seeing as how it's a felony to buy it, nobody is going to offer anything for it publicly.
Since the IRS are considering hypothetical black market sales, they should consider that it's hypothetically a forgery too.
This is well known but the real question is how to prevent that in a reliable way that doesn't open up more problems?
Does it? You are basically paid in advance, surely that should be getting taken into account.
Yes I suppose debt can have a negative value if the interest rate is too high, but if you borrow money at a low interest rate to start the next google, that debt doesn't seem to have negative value to me.
The point is that not all liabilities have assets attached.
So they evaluated it as a work of art, and as museum curators they weren't aware that it wasn't legal for the owners to actually own or sell the eagle. Hence, the large valuation for the unsaleable item.
(This case was resolved 6 years ago.)
Also, per the guidelines, an HN submission should be something that "gratifies one's intellectual curiosity". An edge case in US taxation that could affect only those wealthy enough to have an art collection doesn't really fit that definition.